Don’t Get Punked: Keynes Won This Rap Battle

The writing is as clever as ever. (“Hayek as in ‘high explosives’” says Freddy to a stunned congressional security guard.) The production values: even better.

I enjoyed it too because the Hayek quoted in this second video is the great critic of central planning, the prophet of spontaneous order, the debunker of the pretense of knowledge. This is the Hayek of The Counter-Revolution of Science and the Constitution of Liberty – the Hayek who most inspired and instructed me, and whose teachings are still one of the bedrocks of my thinking about politics and society. It’s very much because of Hayek that I still say (unlike him!) that I am a conservative, despite Donald Trump and Rush Limbaugh.

On the other hand – it’s precisely because we hear so much in this second rap from the Hayek who criticized central planning, that the rap so seriously fails as a guide to contemporary debates.

Because, and now hear this: John Maynard Keynes was not an advocate of a planned economy.

On the contrary! John Maynard Keynes conjured into being the whole concept of the “macroeconomy” (not his word) precisely in order to show liberal democratic societies how they could counter-act deflation and depression without a central plan.

Yes, Hayek and Mises were this century’s most incisive intellectual critics of the planned economy. But it was John Maynard Keynes who produced the most powerful practical alternative to central planning, at precisely the moment when that practical alternative was most desperately needed: at the high water mark of socialism’s moral and intellectual prestige. Keynes expressed his attitude to Marxian socialism in a famous letter to George Bernard Shaw:

My feelings about Das Kapital are the same as my feeling about the Koran. I know that it is historically important and I know that many people, not all of whom are idiots, find it a sort of Rock of Ages … it is inexplicable that it can have this effect. Its dreary, out-of-date, academic controversialising seems so extraordinarily unsuited as material for that purpose…. How could either of these books carry fire and sword round half the world?

The economic question we have faced since 2008 is not: “Shall the government of the United States dictate prices and production throughout the US economy?” Who advocates that? Not Larry Summers. Not Tim Geithner. Not Ben Bernanke. And if there’s any tiny remaining sliver of Barack Obama’s being that wishes for central planning, it to this day remains profoundly hidden beneath all his contrary appointments, policies, and pronouncements.

The conservative insistence on pretending that central planning is the issue has rendered conservatism mute and useless (when not actively counter-productive) on the actual burning question of the day: How do we recover most rapidly from the worst economic calamity to hit the US since World War II?

To this, the modern Keynesians have an answer. To this, the modern self-described Hayekians don’t. And one of the fascinating sub-themes of the two Keynes-Hayek raps is the way they obscure the modern self-described Hayekians’ lack of an answer to Keynes’ urgent question.

Thus for example, from Round 2:

KEYNES
so what would you do to help those unemployed?
this is the question you seem to avoid
when we’re in a mess, would you just have us wait?
Doing nothing until markets equil-i-brate?

HAYEK
I don’t want to do nothing, there’s plenty to do
The question I ponder is who plans for who?
Do I plan for myself or leave it to you?
I want plans by the many and not by the few.

Look what’s happened here: Keynes ask Hayek what he would do. Hayek says, “there’s plenty to do” – and then immediately switches back to a highly generalized discussion of central planning. And as it turns out, the answer that runs through the Hayek rap is, “yes the unemployed must wait.”

But it’s worse than that. Think back to the preview of Round 2 performed at the Economist’s Buttonwoods Summit.

The Hayek character says, “I feel for the suffering, I’m not some kind of jerk.” The Keynes character answers, “Now my old friend, I’d never reject you as if you were heartless, you know I respect you.”

But the suffering want more than “feeling.” They want a policy response. And it is precisely a policy response that our modern self-described Hayekians preclude. Monetary policy? No can’t do that – it only leads to inflation and more bubbles. Stimulative government spending then? No that’s out, it leads to inflation, bubbles, etc. Tax cuts for the ordinary working person such as the payroll tax holiday? No way – we must balance the budget. So that leaves only supply-side tax cuts aimed at the upper-income brackets. balanced by large immediate budget cuts in Medicaid, food stamps, unemployment insurance. Does anybody believe that such a policy mix will lead to rapid employment growth? The Heritage Foundation claimed so, for approximately 48 hours, but now even they have abandoned that assertion.

To the question: What do you do in a deflation, Keynes offered an answer. He intended his answer as a means to preserve exactly the kind of spontaneous order praised by Hayek. Keynes lived and died a liberal in the old sense of the term. There are many criticisms of the Keynesian answer, mostly having to do with that long term that he so famously shrugged off. But some answer is better than no answer – and much better than the answer offered by the modern self-described Hayekians.

Q: What do you do in a deflation?

A: Insist we’re in an inflation.

Not helpful. And exactly the kind of unhelpfulness that created opportunities in the terrible 20th century for vicious authoritarians and misguided idealists to fasten planned economies on more than half the world.

52 Comments so far ↓

the only conclusion i can reach after reading this is that mr. frum really isn’t too sharp.

we’ve been in keynesian operating mode for this entire crisis, and it continues, worsens, and causes suffering for millions.

frum, the alleged intellectual, writes:

But some answer is better than no answer – and much better than the answer offered by the modern self-described Hayekians.

Q: What do you do in a deflation?

A: Insist we’re in an inflation.

Not helpful.

of course, this misses the whole point. you don’t have deflation without first having inflation. deflation is created by prior inflation. the “answer” to deflation is allowing it to occur, not doubling down.

then again, i don’t think mr. frum understands this… or, if he does understand it, he feels it’s unimportant to explain to his readers. truly a childish, sophomoric analysis. meh.

Frum writes: “How do we recover most rapidly from the worst economic calamity to hit the US since World War II?

To this, the modern Keynesians have an answer. To this, the modern self-described Hayekians don’t. And one of the fascinating sub-themes of the two Keynes-Hayek raps is the way they obscure the modern self-described Hayekians’ lack of an answer to Keynes’ urgent question.”

Geeeshhh Frum, we’ve been following the Keynesian playbook for 3 years now and things have only gotten worse.

“Treasury Secretary, Henry Morgenthau, angry at the Keynesian spenders, confided to his diary May 1939: “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot.”

The economy is growing and creating jobs. The unemployment rate has dropped. The credit crisis is over. The asset value in the bond and stock markets have regained most of their value. Consumer spending is up. The housing market decline has leveled off. etc. etc. etc.

You should ask yourself where would we be if no action was taken by the government? 15-20% unemployment?

What has exactly gotten worse in the last three years as you say, since the beginning of 2008?

“we’ve been in keynesian operating mode for this entire crisis, and it continues, worsens, and causes suffering for millions.”

Interesting point of view. You are in complete disagreement with 95% of all professional analysts on this subject and you are in disagreement with prevalent economic theory. That doesn’t mean you’re wrong, but it may be worth considering why so many people (many of whom dedicate their lives to this subject) disagree with you. I’m sure you’ll agree that most professional analysts and economists who recommended stimulating the economy at the height of the meltdown estimated a deflation in short-term demand of roughly twice the level of the federal stimulus that was passed. I’m sure you are aware of the prevalent economic consensus that runaway inflation is bad for consumers and savers, but any sort of deflation whatsoever can wreak havoc in the form of severe economic downturn. I’m sure your aware of the economic consensus (even among the Austrians) that rare deflationary episodes have been the cause of most of the major economic downturns for the global economy over the last couple centuries, including the great depression and the current recession.

That summarizes the conversation that went on between president Bush and his economic advisers. That is why Bush and Republicans in congress put their almost unanimous weight behind the bank bailouts. That is why the conversation continued along those lines into Obama’s term, with most of the president’s economic advisers advocating an econometric analysis that showed we’d need a stimulus twice as large as the one we got if we wanted to speed up recovery significantly. That is why pretty much every data-driven economist on TV or in print for the last 2 years has noted that the stimulus helped make the recessive ditch a bit shallower and shorter in duration, but a lot more stimulus would have been needed to change the landscape in a significant way. That is why virtually every economic metric (growth rate, wage pressure, manufacturing indexes, unemployment rate, etc.) is moving in a positive direction over the last few years, but these positive movements are not going fast enough for the likes of most people.

When I see people say that the bank bailout and the spending stimulus were 100% ineffective, or even crazier, that they had a negative effect on the world economy, I am left puzzled. Are these commenters not aware of the economic theory at play? Are they not aware of the consensus among
Comservative and Liberal economists on these issues? Are they not following the data (what the recessive ditch in demand looks like, how the trajectory changed over the course of the stimulus spending so far, etc.)? Are they not aware of the reasons why most 20th century economists, Conservative and Liberal, believe the safest state for a modern economy is a low steady rate of inflation in order to avoid the dreaded deflation?

A genuine debate is to be had here, but I see a lot of commenters on the right being sensationalistic and inaccurate in their portrayal of it. The minority sect of Austrian economists does have something important to say on this subject. But their opinions in their writings fall very far from “federal spending is always bad”. Such simplistic takes misrepresent what the Austrian School actually preaches and give them a bad name they don’t deserve. When you read their writings and study their positions in detail you come away with a much different picture. They agree with every other economist in the world that federal spending can prop up aggregate demand in the short term. They also agree with every other economist in the world that loose monetary policy (often enacted to loosen credit or allow high short term federal spending) can lead to inflation in the long term. They only differ in their aversion to inflation. Most economists believe that a steady low level of inflation is not a problem and even desirable to avoid deflation. The Austrian School is famous for their unique aversion to this proposition. And they’ve brought most of the world’s economic profession around somewhat to their view. For instance, the discussion in the USA for the last year straight has been about cutting spending (which will feed into the demand shortfall) and avoiding inflation (which has not reared its head yet, we’re still in the thick of a broad deflationary episode). So the discussion has mostly not centered around the actual short term disaster (broad deflationary cycle, huge demand shortfall) and has instead centered on what I think should be secondary or long term goals (slowing inflation that isn’t happening yet). So in a way, the world has been following a more “Austrian” path than you’d expect based on prevalent economic theory and opinion. But economists and nerds don’t make policy. Politicians and voters do. The failure to enact mathematically-recommended stimulus in the short term was certainly a triumph of Austrian ideology. The failure to push harder against the deflationary ditch and unemployment in the short term was certainly a triumph of Austrian ideology. And based on what I know of economics, its been a tragedy for Americans and for the world. Hopefully we’ll pull out of this ditch soon, even if it takes a lot longer than it could have.

a plunging dollar, rising fuel and energy prices, no growth, high unemployment, $14.3 trillion in debt, $1.6 trillion deficit, a Marxist president and democrat party, an ineffectual republican leadership, a double dip in housing, completely feckless foreign policy, an out of control epa and federal bureaucracy in general…

and the dimwit says lighten up. umm, i’m happy to be alive and healthy, but very unhappy with what is happening to my country. the political horse race is not my political concern… i’m worried, for good reason, that we’re in the midst of crossing the rubicon into euro-style top-down government. in other words, buddy, the end of american society as we’ve known it. that’s not a reason to be smiling… but to be fair, it is a reason to drink beer, and a lot of it.

What stood out to me is that the Hayak characters most convincing argument is:

[blockquote]the lesson I’ve learned? It’s how little we know,
the world is complex, not some circular flow
the economy’s not a class you can master in college
to think otherwise is the pretense of knowledge[/blockquote]

There is no answer to that because it invalidates the whole debate.

One side is saying, “I propose this method for addressing the problems in the economy” and the other side is saying, “Who are we to presume there even are problems in the economy?” So the debate changes from a concrete one about cause-and-effect to an existential one about mans place in a complex universe.

Which is an intractable question, which is the point. The idea in bringing up Hayak or Mises is not to discuss their theories. It’s to protect the status-quo.

I understand why you would suggest that book, but what would I get out of it?

How can a rational human look at the history of human kind and believe that we are forever constrained to live our lives subject to forces beyond our control?

The history of human progress is individuals rejecting the ideas that what we don’t currently know is unknowable; that which we currently cannot do is impossible; those things which we currently have not mastered are uncontrollable.

Those are comforting ideas because they relieve us of obligation. But it’s an intellectual crutch. And, as I said, when used in discussion of how we might effect to rise out of the doldrums of the Great Recession, it’s just a dodge employed by those who are comfortable so they don’t have to think about those who are in dire need.

a perfect example of the pretense of knowledge, and why the greeks coined the word “hubris.”

on the contrary, the history of humanity suggests that market forces are beyond our control. price control always results in the same phenomenon, whether in ancient egypt and rome, or in the former ussr and america.

human beings are not capable of rationally directing an economy strictly through articulating rational goals, however seemingly plausible they may sound on paper. you cannot simultaneously maximize both guns and butter. there will always be trade offs of one form or another.

the price system is the only reliable system that engenders these trade-offs in a form communicable through society (hayek’s “extended order”). to repeal the price system causes systemic chaos, much in the same way that repealing verbal language would cause systemic chaos.

FDR followed the path of the interventionist hoover, who framed FDR’s entire economic policy. the depression coincided with the most massive peacetime government intervention in american history.

i’m not sure what else to say, except that i disagree with you very strongly and won’t bother trying to convert you. instead, i’ll focus on defeating you and the democrats in 2012 in a massive landslide to repudiate your destructive agenda.

the price system is the only reliable system that engenders these trade-offs in a form communicable through society (hayek’s “extended order”). to repeal the price system causes systemic chaos, much in the same way that repealing verbal language would cause systemic chaos.

And the Earth is flat and at the center of the universe. Your faith in the “price system” is completely mystical.

If the Price System (haloed be its name) decides that a billion people should starve to death in Africa because of a lingering drought, that’s for the best. If millions of Americans should go without health care because the Price System dictates that health insurance is more expensive than their labor is worth, then that’s how it must be.

It truly reminds me of the belief some held at the time that the Black Death’s victims were chosen by God, rather than suffering from a bacteriological infection spread by rodents.

Totally agree with you there. And? If you are implying that we should do nothing and wait out the rare deflationary ditch we’re in, I disagree.

I’m not trying to imply that at all. There are those who want to blame our current situation entirely on politicians or political policies. Personally, I think it was a confluence of events made up of political ineptitude, regulatory failure, economic circumstances, financial (i.e., investment bank) mismanagement, and poor monetary policy. I think this last gets less attention than it deserves.

However, now that we are in a mess, we need to use all means at our disposal for corrective action. Unfortunately, part of the normal corrective action (adjustments in Fed interest rates) has been severely hampered due to previous Fed incompetence.

I’ve tended not to speak to the video because I’ve argued Hayek and Mises with John Papolo, one of the video’s creators. As a matter of fact, I was arguing with him online at the time he worked on the first one.

However, rather than review the nature of our arguments, he on the side of a system in which regulators (the cops on the beat) are removed, and me on the side of needing those cops to protect society from the occasional bad guy, I would point you to an article posted on Yves Smith’s NakedCapitalism.com. It’s written by Bill Black, Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One.

“a plunging dollar, rising fuel and energy prices, no growth, high unemployment, $14.3 trillion in debt, $1.6 trillion deficit, a Marxist president and democrat party, an ineffectual republican leadership, a double dip in housing, completely feckless foreign policy, an out of control epa and federal bureaucracy in general…

a plunging dollar, rising fuel and energy prices, Willy, don’t be redundant. The planet is running out of oil; American oil production peaked in 1970. The strength of the dollar was based on the American economy and sadly, it looks like a ‘has been’. With all the oil Russia has in Siberia, I wonder if I’ll live to see the ruble more valuable than the dollar. Just thinking.

no growth, high unemployment, $14.3 trillion in debt, $1.6 trillion deficit All inexcusable residue and momentum from the clueless Bush Administration. The growth we are experiencing now, sure looks anemic when contrasted to the phony growth of what is now called the sub-prime real estate bubble. It’s going to take quite a while to recreate all those Mickey Mouse/Fantasy Land jobs of the first three quarters of the first decade of the 21 century. Hence the high unemployment we have today.
How many trillion in debt did Bush hand off to Obama along with the collapsed bubble and many years worth of negative momentum?

a Marxist president and democrat party, an ineffectual republican leadership, a double dip in housing, completely feckless foreign policy, an out of control epa and federal bureaucracy in general…You always close with your trademark silliness . I guess that’s why everyone respects your opinion so much.

“The strength of the dollar was based on the American economy and sadly, it looks like a ‘has been’. With all the oil Russia has in Siberia, I wonder if I’ll live to see the ruble more valuable than the dollar. Just thinking.”

“The economic question we have faced since 2008 is not: “Shall the government of the United States dictate prices and production throughout the US economy?” Who advocates that? Not Larry Summers. Not Tim Geithner. Not Ben Bernanke.”

Uhmmm i am pretty sure that bernanke has been trying to control the price of credit. geithner could have an effect on the price of the dollar. And barrack is trying to generate demand out of whole cloth…..so what are you talking about.

“Not helpful. And exactly the kind of unhelpfulness that created opportunities in the terrible 20th century for vicious authoritarians and misguided idealists to fasten planned economies on more than half the world.”

” KEYNES
so what would you do to help those unemployed?
this is the question you seem to avoid
when we’re in a mess, would you just have us wait?
Doing nothing until markets equil-i-brate?

HAYEK
I don’t want to do nothing, there’s plenty to do
The question I ponder is who plans for who?
Do I plan for myself or leave it to you?
I want plans by the many and not by the few.
”

Having the unemployed toil in careers that are supported through moral hazard weakens an economy even though the employment is higher.
We had government action through 1990-2008 that falsely pushed Americans into housing and finance and pampering service occupations. The recognition of the importance of the lost of high tech and manufacturing industry jobs was papered over by bad government Keynes policies.

If the idiotic housing and financial industry policies did not exist, the expansion of the pampering service industry would not have happened, The higher unemployment would have lead to political policies that make trade policies more balanced and more cognizant of the retention and expansion of high quality jobs that would keep trade deficits low.

Keynes and Frum believe that trade deficits don’t matter. In fact, anecdotal evidence indicates that prolonged trade deficits and deficit spending lead to over-consumption and erosion of high value jobs.

nhthinker, not to be flip, but I’ve a serious question: have you read Keynes? Not just listened to the many misinterpretations of his theories on economics, but actually sat down and read his writings? If not, how do you know what he really thought about trade policies?

So John Maynard Keynes compared the Koran to Das Kapital? I was not aware of that, but it’s not surprising. Not too many people recall that Keynes favored eugenics, and was simultaneously anti-Semitic, anti-Russian, and sympathetic to the early Nazi regime, all of which has been dishonestly glossed over by his liberal hagiographers.

Keynes view is countries of Ants need to be forced to distribute their wealth to countries of Grasshopper and then the Grasshoppers will evolve to be more like Ants than Grasshoppers.

Over the short term, Keynes was correct. But seemingly Keynes did not consider the long term- say 50-100 year impacts on behavior. i.e., the moral hazard, that overemphasis on stimulus and not enough effort on correction leads to precarious economic conditions and weakened financial morality of individuals and governments.

Keynes emphasis on balance of trade was only an advocation of extremely weak countries against countries that were strong. Keynes was about solving crises post WWII.
As best I can discern, he wanted substantial power in global government currency control.

“For my own part, I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today. There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition. Moreover, dangerous human proclivities can be canalised into comparatively harmless channels by the existence of opportunities for money-making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandisement. It is better that a man should tyrannise over his bank balance than over his fellow-citizens; and whilst the former is sometimes denounced as being but a means to the latter, sometimes at least it is an alternative. But it is not necessary for the stimulation of these activities and the satisfaction of these proclivities that the game should be played for such high stakes as at present. Much lower stakes will serve the purpose equally well, as soon as the players are accustomed to them. The task of transmuting human nature must not be confused with the task of managing it. Though in the ideal commonwealth men may have been taught or inspired or bred to take no interest in the stakes, it may still be wise and prudent statesmanship to allow the game to be played, subject to rules and limitations, so long as the average man, or even a significant section of the community, is in fact strongly addicted to the money-making passion.”

He was also bad a math: As most grasshopper advocates are.

Better to have the IMF force all three pigs to build houses of sticks, than to let a single pig decide to build his own brick house and leave the other two pigs to their own devices.

Keynesianism has a much closer intellectual, methodological and historical connection to central planning than your post or modern keynesians wish to acknowledge.

First off, our “Keynes” is not meant to be an exact replication of the historical Keynes. Such a thin is impossible. How, for example, could our Keynes talk about the Great Recession, given that he’s been dead since 1946? It’s called “creative license”. Our “Hayek” isn’t a pure Hayek either. There’s a ton of Robert Higgs in our “Hayek” verses regarding WWII. But that’s also besides the central point. There’s much more to our lyrics and I really have no need to pull the “creative license” card at all.

Our “Keynes” is an amalgam of the Keynesian view as we see it. Keynes did go much farther than a narrow technocratic goal of nominal spending stabilization (something which Hayek had actually also advocated via monetary policy aka nominal income targeting). Keynes also called for the complete “socialization of investment”. More importantly with regard to our lyrics, Keynesians like Abba Lerner, James K. Galbraith (and his son) made and make explicit calls for planning. Keynesian economist Abram Bergson apparently believed that the market socialists were right. Paul Samuelson was most certainly an apologist for central planning in his textbooks, noting repeatedly how fast the USSR was growing (and continually moving his graph forward regarding when the USSR would overtake the US in GDP). Some “science”.

Here’s Samuelson from his 1985 text (!!!):

But it would be misleading to dwell on the shortcomings. Every economy has its contradictions and difficulties with incentives—witness the paradoxes raised by the separation of ownership and control in America. . . . What counts is results, and there can be no doubt that the Soviet planning system has been a powerful engine for economic growth.

“Markets do not design new systems—new patterns of transport and housing, new technologies for electric power, for vehicles, for heating and cooling. To design a system, to put the pieces together, to identify the most promising lines of attack and take steps to achieve them: that is the planner’s role.”

This statement appears to me to be quite easily falsified. Apple’s iPad is reshaping the way information is consumed and created. It is an entirely new “system”. No need for the “planner” there. White LED lighting was not the product of a state planner. The pathway of the internet itself and the emergence of the protocols and standards in use today are not the product of a planner. They are emergent through a competitive process. This top-down view of economics as a “system” is absolutely the fatal conceit we are criticizing.

Moreover, when a keynesian claims that fiscal stimulus can restore full employment, there is an assumption that the structure of production this spending produces will be self-sustaining. If keynesian administrators are capable of systematically of deciding where to allocate resources while disregarding (or at least downplaying) prices and profits, socialism itself should work. The socialist calculation debate applies to the administrators of keynesian multi-trillion dollar spending programs. In reality, however, a program like “cash for clunkers” or the “affordable homes” subsidies provide little more than a temporary bump, pulling decisions into the present and leaving the future poorer and more indebted. That keynesian will handwave away this point and claim that they don’t care where the spending goes doesn’t change the fact that it will, in fact, go somewhere and have real impacts.

Did Keynes advocate totalitarian central planning with his theory? No. Did he say it was more easily adapted to a totalitarian state? Yes. Have many of his most prominent followers advocated central planning? Yes.

So when our “Hayek” says “not your central plan” and “the question I ponder is who plans for whom”… we are entirely within the realm of this broader debate and completely within the context in which Hayek delivered his famed “The Pretense of Knowledge” lecture.

Lastly… yes is sure sounds lovely to claim that you have an answer for “what would YOU do to help those unemployed”. Our answer, which is hayekian and in my opinion more accurate, is that the question itself assumes that one man, group or set of government policies can actually provide a real answer when it is quite probably that there is no answer at all. The economy is organic. It is like a rainforest, not a machine or a “system”. Instead, our answer is to provide stable rules and allow real market prices so prosperity can emerge and cut short the crisis. That is a real answer. There are real policy implications for that answer. That’s no cop-out, even if it is frustrating for “policy makers” who stand to personally benefit from looking like they are “doing something”.

Never mind that the “doing something” that actually got done surely hasn’t worked by any reasonable measure. Unemployment is higher now than the “if we do nothing” projections. The “things would have been worse” analysis coming from the Blinders and Zandis of the world appear to be an unscientific backward revision, inputing the real results into a failed model and spitting out computer-generated counterfactuals (or counterfiction). Real science re-examines the model when predictions fail. But, as Hayek pointed out, what we’re really dealing with here is “scientism”.

I am reminded of the famous ‘Yes Prime Minister’ quote:

“We must do something. This is something. We must do this.”

The questions I ponder are “who is we”? How do “we” know what to do? And, yes, “who plans for whom”? Nobody is getting “Punked” here, David. At least, not by us.

p.s. – it would have been nice to see an excerpt from Keynes regarding Marx that actually contained some economic analysis instead of this obnoxious attack on the Koran. Keynes had a sharp tongue, but he was also a brilliant and deep thinker. Surely he’s written more thoughtful criticisms of socialism than this tasteless screed.

you say,
“And the Earth is flat and at the center of the universe. Your faith in the “price system” is completely mystical.

If the Price System (haloed be its name) decides that a billion people should starve to death in Africa because of a lingering drought, that’s for the best. If millions of Americans should go without health care because the Price System dictates that health insurance is more expensive than their labor is worth, then that’s how it must be.

It truly reminds me of the belief some held at the time that the Black Death’s victims were chosen by God, rather than suffering from a bacteriological infection spread by rodents.”

I can’t, in a blog post, outdo the rappers:

The economy’s not a car, there’s no engine to stall
no expert can fix it, there’s no “it” at all.
The economy’s us, we don’t need a mechanic
Put away the wrenches, the economy’s organic

Prices, the product of human interaction, are what guide (possibly more apt to say “prod”) us to prosperity.

May I add, now that I had the chance to watch this with sound, it’s awesome!

One more thing. I’m not really sure that the actual historical record conforms to this narrative that Keynes saved American from socialism, especially since Keynes himself and later Keynesians claim that his theory wasn’t even tried until the war. Here’s Keynes from The New Republic in 1940:

“It is, it seems, politically impossible for a capitalistic democracy to organize expenditure on the scale necessary to make the grand experiments which would prove my case — except in war conditions.”

The election results for the socialist party (trying to find them…) seem to indicate a popular rejection of socialism long before any Keynesianism could be said to have been put in place. This assertion that Keynes offered a vital counter to the socialist onslaught seems dubious… but maybe I’m missing something.

[...] pm in Uncategorized | Permalink1. Why is this an equilibrium (video of cheetahs)?2. The real Hayekian answer should be, and sometimes was, nominal gdp targeting, to minimize price distortions. There is much more on Hayek and nominal gdp here (pdf).3. Via [...]

“Keynes argued that economies could underperform their potential for worryingly long periods of time, and that their tendency toward underperformance had grown worse since 1914.”

This argument is the essence of Keynes’ plan. What potential? Whose potential? More battleships? Wonderbread? Electric cars? Varsity athletes? Or maybe just the same amount of those things as existed pre-slump? Certainly the poor were with us pre-slump, perhaps in smaller number. What should be done about them? Should their number be maintained at the pre-slump level?

The Keynesian approach takes as given that optimal output can be determined by parties other than those producing and consuming that output. This is the very essence of planning.

There are many criticisms of the Keynesian answer, mostly having to do with that long term that he so famously shrugged off.

I’m sorry to see Mr. Frum repeating this slander against Keynes, the suggestion that he meant that it was okay to leave future generations to deal with problems we create now.

What he actually said:

The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.

i.e. in answer to those who proposed that in the long run an economy will recover*, so there’s no need for intervention, he is pointing out that in the meantime people are suffering, and taking the long term view is of no help to current problems.

Shame on you, Mr. Frum, for propagating that old canard!

Though perhaps that is why you go on to say:

And for the record, I am not in general a big Keynes fan.

But why not exactly?

After all, in your words:

…actual burning question of the day: How do we recover most rapidly from the worst economic calamity to hit the US since World War II? To this, the modern Keynesians have an answer.

What do you do in a deflation, Keynes offered an answer. He intended his answer as a means to preserve exactly the kind of spontaneous order praised by Hayek. Keynes lived and died a liberal in the old sense of the term.

…it was John Maynard Keynes who produced the most powerful practical alternative to central planning, at precisely the moment when that practical alternative was most desperately needed:

What’s not to like?

(*Keynes was referring to a bout of inflation, but we can apply the same thought to a period of high unemployment.)

[...] Liberals and conservatives have a longstanding dispute about the efficacy of government involvement in society. We liberals believe that without government, society could not function. Conservatives- American ones at any rate- believe that “I’m from the government and I’m here to help” is a “terrifying” phrase. Interestingly, the former Bush speech writer who coined the phrase “axis of evil” seems to be hitting back at conservative anti-government rhetoric. [...]